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Foreign Exchange

High Yield: A bridge too far?

European high-yield market faces a €6 billion test

Leveraged financiers are no doubt relieved that the high-yield bond market reopened in July. In the first quarter the investment-grade and sub-investment-grade markets saw increasingly aggressive transactions placed with investors desperate to put cash to work. However, when GMAC was downgraded to junk by Fitch Ratings and Standard & Poor's, the high-yield sector was hit hard. With performance and supply struggling, it was the lowest ebb in high yield since 2002.

A market that is shut down – with investors nursing heavy losses and wary of historically high leverage – is not the best situation in which to refinance €6 billion of bridge risk.

Several recent jumbo LBOs are expected to seek refinancing in coming months, including a €1.25 billion bridge to a high-yield bond and €500 million to a pay-in-kind note for the massive LBO of Wind. There is a €1.1 billion bridge for Basell, Tim Hellas Communication's €900 million, another €900 million for Amadeus, and €785 million for ISS. Among the non-jumbo financings are CEDC's €310 million and €150 million for Blagden.

"It is daunting for investors. Supply will need to be staggered," says a European head of leveraged finance.

"There is greater market sensitivity," says Paul Watters, head of loan and recovery ratings at S&P.

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